Extra funding is being provided for mental health nurses to be based at police stations and courts in the Avon and Wiltshire area.
Ten regions are being given a share of £25 million from the Government as part of a trial to provide professional support in court and police stations for people with mental health problems.
The money will be used to fund mental health nurses and professionals, ensuring people with mental health and substance misuse problems get the right treatment as quickly as possible, and help reduce re-offending.
The majority of people who end up in prison have a mental health problem, a substance misuse problem or a learning disability and one in four has a severe mental health illness, such as depression or psychosis.
The money announced today will be invested over the next year and will join up police and courts with mental health and other services so people get the treatment they need at the earliest possible stage.
Care and Support Minister, Norman Lamb, said: "Too often people with mental health illnesses who come into contact with the criminal justice system are only diagnosed when they reach prison.
"We want to help them get the right support and treatment as early as possible. Diverting the individual away from offending and helping to reduce the risk of more victims suffering due to further offences benefits everyone.
"That's why we are investing £25 million for liaison and diversion services at police services and courts across the country.
"These will help identify when someone in a police station or involved in court proceedings who has mental health problems are referred to the right mental health services and are given the help and support they need."
Ten areas across the country will be testing out a new model of Liaison and Diversion services to ensure quality of services are consistent across the board regardless of where someone is.
These are Merseyside; London; Avon and Wiltshire; Leicester; Sussex; Dorset; Sunderland and Middlesbrough; Coventry; South Essex; and Wakefield.
These services will be evaluated and if successful, extended to the rest of the country by 2017.
Policing Minister Damian Green said: "Police officers should be focused on fighting crimes and people with mental health conditions should get the care they need as early as possible.
"These pilots will not only ensure that happens but in the longer term will help drive down reoffending by individuals who, with the right kind of treatment, can recover fully."
National Director for Health and Justice, Armed Forces and Public Health commissioning at NHS England Kate Davies welcomed the move.
She said: "We fully support this initiative. High quality liaison and diversion services will mean better outcomes for patients and for the criminal justice system by reducing health inequalities and re-offending.
"The liaison and diversion programme is key to ensuring early help and treatment for adults and young people. Seven day assessments from police custody and courts, often at a time of crisis, has already reduced re-offending and saved lives."
